Pre-requisites for success of retail banking

Retail Banking depends upon the geographical and demographic situation of countries across the world. We cannot think of disbursement of Four-Wheelers Loans in rural backward areas whereas it is very common in urban areas. Similarly, small agriculture loans can be disbursed in Rural / backward areas where there is little scope for the disbursement of agriculture loans in cities. Which product and services we should offer to the target group depend upon prudent business decisions.

a) Initial Phase: During this phase, the banks were primarily engaged in offering the basic intermediation service i.e. provision of savings facilities and credit for productive purposes, and also facilitating payment services including remittances.

b) Intermediate Phase: Apart from providing the services offered in the initial phase, the banks additionally moved into lending for consumption purposes. The banks also started offering certain para-banking services like insurance etc. The demand for such services arises primarily on account of a transition of the economy from an investment (production) led growth phase to a consumption-led growth phase. At this stage of the development of the economy and society, retail banking becomes relevant.

c) Advanced Phase: Apart from providing the services offered in the intermediate phase, the banks have additionally started providing high-end savings & investment products, wealth management products, and structured products to both individuals and corporate. In other words, in this phase, the banking system additionally starts supporting speculative activities over and above for the production and consumption activities. Private banking, an advanced version of retail banking for ‘classes’, becomes relevant at this stage. Therefore, the success of retail banking involves

1. Banks start retail banking aiming at common masses with “mass retail banking” and through different stages and phases reach to “class retail banking”. In the case of mass retail banking standardized banking products and services are offered to customers at large whereas customized banking products and services are available for rich and elite people especially the High Net worth Individuals (HNI).

2. There is confusion whether SMEs should be included in retail banking or not. At earlier stage of retail banking, it includes banking products and services targeted towards the individuals mostly the masses. Gradually it moves to the direction of class banking and banking for entrepreneurial purposes for the individuals, for agriculture, or for small businesses (SMEs).

3. It is expected that under Mass Retail Banking the banking products and services are standardized. There is no question of customization of the products or services. The entire system is non-discriminatory, uniform, and transparent. Through multiple channels and also through multiple places like bank branches, ATMs, internet, telephone retail banking products are offered to the customers. Under mass retail banking, banks reach out to groups of individuals with the help of suitable systems, structure, manpower, and processes to deal with the group, group characteristics, group behaviour, and group dynamics.

4. Pricing is a very big issue in Retail Banking. The rate of interest paid to retail depositors differs as per the sweet will of the banks. Interest rates on standard lending products also vary as per the policy of the banks and they charge different rates of interest to different customers for the same type of lending product.

5. Banks in India should develop effective customer protection systems/methods so that commitment to deal with the customers with all sorts of fairness truly exists. Nowadays, customer protection is a global phenomenon, and banks of developing nations including India cannot keep their eyes closed to avoid this burning issue.

Retail Banking practically reaches at its almost maturity levels in developed countries whereas it has got ample opportunities in emerging economies.

For citing this article use: 

• Krishna, B. B. (2015). A Study Of Retail Banking In Selected Public Sector Banks Of India.